Government's Initiative to Modernize Banking Sector
Iraqi Banks: A Classic Mentality That Prevents Keeping Pace With Global Development
As of September 19, 2024, Iraqi banks continue to struggle with a classic mentality that hinders their ability to align with global financial standards. This resistance to change is rooted in a preference for the "government" over "national" development, a mindset that has persisted despite Iraq's need for a robust banking sector to support its economy.
In a significant step toward addressing these challenges, Prime Minister Mohammed Shia Al-Sudani announced the establishment of a high-level committee aimed at aligning Iraqi banks with international financial requirements. The committee's formation reflects the government's commitment to economic reforms and the recognition that Iraq needs strong domestic banks adhering to financial standards to play a key role in the country's development.
Challenges and Opportunities
The Iraqi banking sector faces significant challenges, including corruption, a lack of basic services, and a feeble private sector and foreign direct investments (FDIs). Despite these hurdles, there are opportunities for growth, as evidenced by the interest of several Arab and international banks in cooperating with the Iraqi government on developmental plans.
Economic Dependency on Oil
Iraq's economy remains heavily dependent on oil, with oil revenues accounting for over 99% of exports, 85% of the government's budget, and 42% of gross domestic product (GDP). This overreliance on oil exposes the country to macroeconomic volatility and restricts fiscal space for countercyclical policy.
Diversification Efforts
Under Al Sudani's leadership, the Iraqi government is increasingly exploring public-private partnerships (PPPs) to finance major development projects. Strategies include diversification efforts to reduce reliance on oil revenues and foster infrastructure development, partnerships for sustainable growth, and economic and financial sector reforms to attract foreign investments.
Budgeting Challenges
The recent passage of the 2023, 2024, and 2025 federal budgets marks a significant milestone, but the economy's heavy dependence on oil sales and the volatility of the global oil market remain major concerns.
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